Elasticity of Demand and Supply

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Transcript of Elasticity of Demand and Supply

Elasticity of Demand And Supply Price Elasticity of Demand (Ep) Income Elasticity of Demand (Ey) Cross-Price Elasticity of Demand (Eab) % ∆ in Qd resulting from a % ∆ in P measure of degree of responsiveness Factors affecting Ep no. + closeness of substitutes within same price rangeproportion of income spent on the good %∆ in D resulting from a %∆ in Y Ey < 0 = inferior good0 < Ey < 1 = normal good (necessity)Ey > 1 = normal good (luxury) factors affecting Ey degree of "necessity" of goodincome level of consumers %∆ in D for good A resulting from a %∆ in P of good B Eab = -ve = complementary goodsEab = +ve = substitutesEab = 0 = independent goods factors affecting Eab closeness of subtitutes/complements %∆ in Qs resulting from a %∆ in P factors affecting Es time periodvery short runshort runlong run behaviour of costs as output ↑ how the good is defined Price Elasticity of Supply (Es)